Increase in the cost of money: a rise in prices
An increase in the cost of money by another 50 cents by the European Central Bank certainly complicates life a lot for those with a variable mortgage, but it also risks having major repercussions on the real estate market. Euribor, the parameter used to index the cost of variable rate mortgages, came in at 2.92% on Monday 6 March (quarterly rate calculated over 365 days), and is therefore in line with the current value of the ECB rate, now at 3%. Everything indicates that between the end of March, the day after the increase that will be formalized in Frankfurt, in the middle of April, it will rise in turn by 50 cents, because since July 2022, that is, since the ECB rate fell from zero, the Euribor he repeated This trend. An increase of 50 percent weighs around 40 euros per month for every 100,000 euros of borrowed capital. Meanwhile, the Governor of the Bank of Italy, Ignazio Fiesco, once again called for caution in the monetary policy options adopted in Frankfurt.
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20 Years Eurirs Above 3%
Yoris at the age of 20the parameter is a criterion for calculating fixed mortgages, On Monday, March 6th it was placed just above 3%Down by a few cents compared to last week, but the high volatility of this indicator does not allow for predictions. The rest of the day, fixed and variable rate mortgages are, in theory, offered in similar circumstances, but in all likelihood in a few weeks, variable rate mortgages will increase again, without being turned off as Christine Lagarde allowed it to be. It is understood that if core inflation does not subside, central bank policy will become more restrictive.
Choose fixed rate and bank restrictions
Of course, in such a situation, the choice in favor of the land line by those who want to buy a home and have to resort to financing is not questionable, at least for those who have to go into debt at or close to the limit. Income capacity. However, there is a big catch, which is why we say a fixed mortgage could theoretically be an option.
Nobody knows today how long there will be inflation and a high cost of moneyBut it is virtually certain that when inflation returns to the level that the ECB judges to be physiological, i.e. 2%, rates will fall and then inevitably replace fixed-prime mortgages.
However, banks aren’t interested in giving out loans that would obviously be replacements, so stressing liens seems inevitable, especially for 20+ year mortgages.. According to real estate agencies, previous increases have already slowed transactions in the latter part of 2022 and to gauge the extent of the slowdown it will be enough to wait for Thursday, March 9 with official data from the revenue agency. , but the situation is likely to get worse in this first glimpse of 2023.
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– ECB rates are rising, as mortgage payments are increasing: 4 examples to understand the emergency
Fixed rate mortgages, what happens with a rate hike?
And we come to those who have a variable mortgage in place and haven’t been able to get it replaced in time. Let’s see what happened to 4 pairs of 20- and 30-year indexed loans of €200,000, all taken out at a rate calculated on the 3-month Euribor average with a difference of 1.30% (at 20) and 1.50% (at 30). (here are the tables). The extent of the increases depends on the remaining term of the loan and the initial rate: the higher the number of installments to be paid, and the lower the starting rate, the greater the increase in the installment. Assuming that in May the Euribor will be placed at 3.5%, those who took out a 30-year mortgage in 2018 would see the premium double compared to the initial mortgage, in fact rising from 641 to 1273 euros (632 euros more). It greatly limits the harm to those who took out a 20-year mortgage 10 years ago, Note that the increase compared to the initial installment is 295 euros.
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– ECB rates are rising, as mortgage payments are increasing: 4 examples to understand the emergency
Options: renegotiate with the bank or switch to a landline
There are ways out of this situation but they are not easily feasible. The first is Re-negotiate with the bankIt is a solution advocated by Christine Lagarde, who argues, as hard as she can be blamed, that institutions have no interest in increasing the volume of non-performing loans. With your institution, you can change the type of rate, the remaining term of the loan, and the methods of principal amortization. It is said that Lagarde’s call will not be heard. The bank can also be forced to switch from a variable to a fixed one, if it is the first home, if the installment payment has never been late, and if you have an ISEE of less than €35,000. Assuming you are entitled to it, under the current circumstances, the flat rate would be above 4%. Finally, it can be redeemed at a fixed rate (always around 4%) but since there is no limit to the number of solutions that can be made, banks, for the reasons explained above, are not ready to welcome new potential scammers.